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Romney’s Michigan Gamble

For the moment candidate Romney has ceded the airwaves to the Obama – Santorum firestorm about social issues. Charles Krautheimer has written the definitive piece on Obama’s attack on the first amendment’s dictate that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof”, the unprecedented requirement that (insurance) companies provide free services to a favored class of people, and the unconstitutional mandate that individuals buy a service which they may not want. That will sort itself out in the courts, but within the Republican party the contraception/sterilization/abortion mandate has propelled Santorum to the top – quite likely the Obama campaign’s intended outcome. In the broader public, the administration has succeeded in framing the debate as a “woman’s right to choose” which seems to trump freedom of religion. Oy vey. Sorry Charles.

Meanwhile, candidate Romney takes the principled but unpopular-in-Michigan stand that traditional reorganization in bankruptcy would have been a better solution to Detroit’s problems in 2008 than government ownership. What was he thinking – in his 2008 New York times op-ed, and in his recent Detroit News piece? Why double down?

On the substance:

- The $80 billion bailout, overseen by the ethically-challenged Steven Rattner, represented an unprecedented intrusion of the federal government into private industry, protecting the UAW at the expense of bondholders and the non-union staff of General Motors and Chrysler. The end result has been survival with Chrysler, now majority-owned by Italian Fiat, and General Motors, still partially owned by the US government and the UAW pension fund. GM has been slimmed down with four US brands remaining (Chevrolet, Buick, GMC, and Cadillac) and 70% of its sales outside the country. Most of the government’s bailout funds have been returned – except for the remaining 27% stake in GM and a $12 billion stake in Ally Financial, the former financing arm of GM. In an extraordinary step, the IRS issued a special ruling to allow the new GM to keep $45 billion in tax losses from the pre-bankruptcy GM – a gift lost in the administration’s accounting.

- On an ongoing basis the federal government is an awkward partner in the auto industry. Federal subsidies for each Chevy Volt amount to $10,000 for a vehicle with little consumer demand and a short history of battery fires, downplayed by the safety authorities. Labor negotiations have been problematic with the UAW primarily targeting Ford in the 2011 negotiations.

On the politics:

- Michigan has voted Democratic in the last five presidential elections, and has declined in population to 16 electoral votes (similar to Georgia or North Carolina.) It is not a key state in the Republican map – although Romney’s roots and endorsement by Republican Governor Rick Snyder should give him an edge there.

- Michigan is also small in the Republican nomination calculus. On the numbers, Michigan will have only 30 delegates (out of 2286)to the convention due to a 50% penalty for going earlier than the Republican National Committee allowed, and those will be split proportionally. But the optics matter.

- Romney’s primary opponents and much of the media have claimed that a Romney primary defeat in Michigan would spell his doom, and the volatile polls have shown a Santorum surge, particularly among the religious conservatives of western Michigan and union members. As a window into the thinking of the White House, the national Democratic party has been holding news conferences around the state and an Obama-oriented PAC is running ads to criticize Romney for his opposition to the auto bailout. (Santorum, Gingrich, and Paul also opposed the bailout, but get a pass in the Democratic anti-Romney blitz.)

- The broader calculation should reward Romney for his principled stand. Nobody understands the restructuring of the auto industry better than the son of the president of American Motors who made his fortune growing and restructuring companies. Outside of Michigan he has strong agreement within the party and is positioned to make crony capitalism a major issue in a campaign against President Obama. His Michigan stand should add some “cred”, as did his refusal to follow Gingrich’s pandering to the space industry in Florida.

For Romney the Santorum values surge came at a bad time in the context of the Michigan primary, and any momentum may carry over into Super Tuesday. If so, the contest becomes a grueling delegate count which may stretch until Utah’s 40 delegates are selected in the final primary on June 26. In the end, Romney’s money and organization should prevail as the painful process moves to the large, more moderate states of the Northeast and the West Coast. But it would be much better to allow the Republicans to unify and pivot to face President Obama well before the August 27 Tampa convention.

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This week’s video of the White House press secretary claiming that Obama didn’t turn down the Keystone XL pipeline calls to mind Bill Buckley’s famous rejoinder “I’m not going to insult your intelligence by pretending that you believe what you just said.”